Climate Control During Proxy Season

What you are missing is that a lot of investors really don’t care about the proxy votes.  The outcomes of those votes don’t impact their investment strategies and thus it’s not worth their devoting any resources (and raising their management fees) to figuring out what the “right” way to vote would be.  Trust management or else sell the stock is their basic philosophy.  However, since they are required by law/regulation to vote and to show some degree of care when doing so, they make the expedient decision to outsource that function and forget about it.  Seems like a reasonable cost-benefit analysis.  Thus, we have a cottage industry of proxy advisory services out there.  It’s no different than a lot of things in life.  But, there are consequences to this, especially when one service provider dominates the cottage industry.  I agree with Morrow & Co’s analysis that one shouldn’t overstate the influence of proxy advisory services, nor should one underestimate their influence.  Know who your investors are and how they think and behave when it comes to voting.

Proxy contests staged by dissident investors are totally different than the normal annual meeting votes, as those contests very clearly can impact the short and long-term value of the stock.  My guess is that the investors that don’t care to spend time/money on voting steer clear of the stocks with the greatest potential to be impacted by the kind of volatility that comes with a proxy contest, whereas activist investors feast on such opportunities and thus devote a lot of resources to analyzing those potential situations.

Keep in mind that no institution would ever publicly admit to having a policy or practice of blindly voting along proxy advisory firm recommendations…